Asset Pricing in A Segmented Emerging Market

Journal of Applied Economics ( web site) 2000 III387-412
(RePEc:cem:jaecon:v:3:y:2000:n:2:p:387-412)

Abstract:

This paper investigates the effect of market segmentation on stock prices and returns in emerging Chinese markets. Under the assumption of infinite investment horizon and representative consumer, I formulate an Intertemporal Capital Asset Pricing Model (ICAPM) with restrictions on share ownership. The model posits that cross-section variations in the average excess returns between domestic A -and foreign B- shares depend on systematic risks as measured by shares' own market betas and betas with respect to the international equity markets. After correcting for errors-in-variable problem, I obtain econometric results consistent with the empirical predictions of ICAPM.

Keywords: asset pricing; ICAPM; market segmentation; ownership restriction; China
Pages: 387-412
Volume: III
Month: November
Year: 2000

Related papers by JEL classification:
G12 G15 O16

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